Interpretive Letter to Rule G-32

Furnishing of official statements: duplication of copies. In our telephone conversation this morning, you raised a question regarding whether under rule G-32 a municipal securities dealer must delay sending a final confirmation to a customer until the dealer is able to send a copy of an official statement.

Rule G-32 requires municipal securities professionals to furnish to customers copies of official statements prepared by issuers "at or prior to sending a final written confirmation of the transaction to the customer indicating money amount due." This language was not intended to require municipal securities dealers to delay sending final confirmations until an official statement is made available by an issuer. Significant evidence of the Board’s intent in this regard is the provision in the rule providing that in the event an official statement in final form is not available from an issuer "at the time the final confirmation indicating money amount is sent," the official statement in preliminary form, if any, should be sent to customers. An official statement in final form must then be sent when it becomes available. This provision supports the conclusion that the Board did not intend to require that final confirmations be delayed until an official statement is made available by an issuer.

In connection with this question, I should point out that it is the Board’s position that if an official statement is made available by an issuer, it is incumbent upon municipal securities dealers to see that their customers receive copies of the official statement. A municipal securities dealer cannot avoid the rule on the grounds that the issuer did not supply a sufficient number of official statements for distribution. The dealer in such a case has to bear the burden of reproducing the official statement. MSRB interpretation of March 7, 1979.

Note: The above letter refers to the text of rule G-32 as in effect prior to the amendments effective on August 30, 1985.

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Applicability of rule to sole underwritings. Your letter dated March 7, 1979 has been referred to me for response. In your letter, you inquire whether rule G-32(a)(ii) applies in the case of a negotiated sale involving a single underwriter. Rule G-32(a)(ii) requires municipal securities professionals to disclose certain information regarding underwriting arrangements in connection with such sales.

As you pointed out, the term "new issue municipal securities" is defined in rule G-32 by reference to the provisions of rule G-11. However, although rule G-11 applies only to syndicates "formed by two or more persons," rule G-32 is not so limited. The Board intends rule G-32 to apply to all new issues of municipal securities, whether sold by a sole underwriter or a syndicate composed of two or more dealers. The number of underwriters involved in the sale of a new issue is immaterial for purposes of rule G-32 since the rule is intended to assure that investors are provided with copies of official statements and, in the case of negotiated sales, certain other pertinent information. MSRB interpretation of April 18, 1979.

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Disclosure of underwriting spread. As you know, Board rule G-32 provides that a dealer selling new issue municipal securities must furnish its customers with certain information at or prior to sending final money confirmations. Under subparagraph (a)(ii) of the rule, in the case of a negotiated sale, the dealer must furnish certain specified information about the underwriting arrangements, including the "underwriting spread." The Board has interpreted this provision to require that the gross spread (i.e., the difference between the initial reoffering prices and the amount paid to the issuer) be shown. The Board has also indicated that the gross spread may be expressed either in dollars or in points per bond.

The Board recently issued an interpretation of rule G-32(a)(ii) to the effect that the underwriting spread may be expressed either as a total amount or as a listing of the components of the gross spread. Thus, for example, the following disclosure would meet the requirements of the rule:

Application of Proceeds

 

Construction Costs .............................................................$120,000,000

Underwriter’s discount............................................................2,500,000

Legal expenses ............................................................................200,000

Printing and Miscellaneous expenses........................................ ..300,000

Principal amount of bonds ....................................................123,000,000

 

Should you have any questions concerning this interpretation, please call me. MSRB interpretation of March 9, 1981.

Note: The above letter refers to the text of rule G-32 as in effect prior to amendments effective on August 30, 1985.

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Disclosures in connection with new issues. This is in response to your November 30, 1993 letter requesting interpretive guidance regarding Board rule G-32(a)(ii)(C). That provision requires dealers in connection with a negotiated sale of new issue municipal securities to disclose "the initial offering price for each maturity in the issue that is offered or to be offered in whole or in part by the underwriters." You inquired as to whether the term "initial offering price" as used in this provision could be stated in terms of yield. The Board has reviewed your request and authorized this response.

Rule G-32 requires dealers selling new issue municipal securities to provide certain written information to customers. In connection with new negotiated issues, paragraph (a)(ii) of the rule requires that this written information include the underwriting spread, the amount of any fee received by a dealer as agent for the issuer in the distribution of the securities for each maturity in the issue that is offered or to be offered in whole or in part by the underwriters, and the initial offering price of each maturity.

With respect to the "initial offering price," the Board has concluded that this price may be expressed either in terms of dollar price or yield. Since customer confirmations generally must show both dollar price and yield, the Board believes that either form of "initial offering price" would provide customers with the requisite comparative data about the relationship between the initial offering price and the price of the securities being purchased. MSRB Interpretation of December 22, 1993.

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